On 20th December 2011, the EU Commission announced its approval, under the EU State Aid rules, of UK support measures of up to £400 million for the creation of the social investment company Big Society Capital (BSC). UK government support for BSC will be provided by the use of money from dormant bank accounts under the Dormant Bank and Building Society Accounts Act 2008. If a bank account has been without transactions for at least 15 years, the bank can transfer the balance to a Reclaim Fund against which the account holder can claim. Unclaimed money in that fund can be handed over to BSC. The UK Co-operative Bank is currently working on establishing the Reclaim Fund.
BSC will invest in social enterprises, charities and voluntary organisations that have difficulty in raising affordable funding from the markets. It will generally do so through Social Investment Finance Intermediaries to develop financial intermediation for the social sector and to address market failures in that area. The Commission approval is limited to five years and any state provided capital above £400 million or any increase in BSC’s balance sheet total to more than £600 million within that period must be notified to the Commission.
The BSC was formally proposed by the Cabinet Office of the UK Government in May 2011 as part of a wider strategy to increase the scale of the Social Investment Market in the UK. BSC is intended to provide a range of financial services to social sector organisations, to raise money for onward investment in the sector, and to assist social organisations to become more sustainable and resilient. Its initial capital consists of the £400 million estimated to be available from dormant bank accounts and a further 200 million to be provided by the UK’s four largest private sector banks. BSC is to be set up by April 2012 and will operate as a wholesale, independent, non-public, social sector organisation. It will be committed to transparent reporting of both its financial results and its social impact and will aim for long term self sufficiency after suffering some capital attrition in the first five years. (see http://www.cabinetoffice.gov.uk/content/big-society-capital)
One ground for the Commission’s decision under Article 107(3)(c) of the Treaty on the Functioning of the European Union was an undertaking by the UK Government that all support for and recipients of funds from BSC would meet the requirements of one of two Block Exemption Regulations. The first would require the amount of the capital invested to be be too small to constitute state aid under the EU rules under Commission Regulation (EC) No: 1998/2006 – currently 200,000 euro’s. The second would be that the investment would remain within the limits set out in the Commission regulation exempting categories of state support from scrutiny because their economic benefits (in fields such as SME support or social, regional, or environmental aid) are deemed to outweigh potential distortions of competition in areas (Regulation No 800/2008).
In addition, the Commission took into account that any funding provided by either BSC or a Social Investment Finance Intermediary financed by BSC would be conditional on market funding being unavailable and subject to criteria about the applicant’s business plan, the expected level of risk adjusted returns, and the social impact of the investment being met. See:
This Commission decision indicates that the EU State Aids rules do not need to stand in the way of the development of co-operatives, social enterprises, or other organisations with social or charitable objectives. The Commission approved the UK proposal quickly on the basis of undertakings by the UK Government. The modest scale of the proposed state aids and the likely focus on objectives such as social and environmental benefit were crucial to the decision. However, the approval also provides further evidence of the EU’s positive approach to the role and importance of co-operatives and social enterprises. In that sense the approval builds on the decision of the European Court of Justice of 8th September 2011 in Joined Cases C‑78/08 to C‑80/08 on the application of state aid rules to certain Italian tax provisions concerning co-operatives.
As a result, 2011 has been an important year for EU recognition of the role of enterprises which can be classed neither as state owned nor as investor owned and which represent an alternative to both statism and an investor dominated market economy.
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